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Allen: I thought you might be interested in the following from the MF board regarding rebates.
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Subj: Re: Rebates
Date: 10/20/96 2:22:27 PM
From: RB61
Seems sometimes we get so caught up in the stock price that we forget the fundamentals of the company. Back in July, I was reminded by some kind soul on this board that IOMG was only extending the rebate program to U.S. sales. That changed my estimation of the costs of the rebate. Seems some of the bears did not read all those posts from back in July. They were under the impression that 100% of the Zip drives sold would be subject to the rebate with approximately a 70-80% redemption rate. Seems they need to read this board more than at options expiration time and around earnings. Maybe they would learn something :>).
Below is a post that lays this out in very eloquent terms. Much better than I could explain.
Reposted from folder #137:
<<Subj: Re:Econ 202
Date: 96-10-20 15:07:57 EDT
From: BriLeo87
Posted on: America Online
It appears that some folks have recently gone short because of their analysis that IOMG "must have" understated the effect of the rebate program and that they "must pay the piper" in the 4th quarter. Let me point out a couple of things which may, or may not, help the discussion.
First of all, the rebate program was not applicable to OEM sales. OEM sales were 10% this quarter or approx. 90,000 drives (if we use JPM's estimate of 900,000)
Second, the rebate program was available only in U.S, if I remember correctly. Not available in Asia and Europe. Someone correct me if I am wrong.
Third, for rebates presented AND PAID in 3rd quarter, no reserve was taken. The rebate was "charged" directly off of revenues. In other words revenues in the 3rd Q would have been higher but for the rebates already paid. Again, if I am mistaken please correct me.
Fourth, some percentage of rebates will not be for the $50 cash but for the "other stuff". I don't remember exactly what this is but I think it was a combo of disks and a carrying case. Whether or not the "true cost" to IOMG is $50 for this option is not clear to me.
In short, I think it is too simplistic to merely multiply the number of drives sold by $50 to project out what IOMG "should have" reserved. There are other factors to consider.
IMHO, the shorts were surprised that IOMG posted a profit at all. They had convinced themselves that because of the rebate program (and perhaps also weak Europe sales) IOMG would lose money. They were wrong. Now they forced to use the argument that IOMG must have used voodoo accounting. Strangely this reminds me of January of this year when we heard the same thing.>> |
